An Alternative to Cash? Using Sweat Equity for Down Payments

Down payment standing in your way of becoming a homeowner? Coming up with the cash is so yesterday. You may be able to use your sweat equity to get in the door, instead.

The Department of Housing and Urban Development (HUD) just announced it will be awarding $10 million in sweat equity grants to nonprofit housing organizations through its Self-Help Homeownership Opportunity Program (SHOP). “The funds, combined with labor contributed by the homebuyers and volunteers, will lower the cost of homeownership for certain buyers,” said HousingWire. “According to HUD, through the program, homebuyers contribute ‘significant sweat equity’ toward the development of their housing units or the units of others participating in the local self-help housing programs.”

Low-income homebuyers can work toward their down payment through activities including “landscaping, foundation work, painting, carpentry, trim work, drywall, roofing, and siding. A minimum of 100 sweat equity hours is required from a household of two or more persons, while a minimum of 50 sweat equity hours is required from a household of one person.”

More than half of the money in this round of grants is earmarked for Habitat for Humanity, which they will apply toward at least 284 SHOP units for low-income homebuyers who meet the sweat equity requirement. HUD has a history of awarding SHOP grants; they provided $9.9 million in sweat equity grants in 2016, $13.5 million in 2011, and $25 million in 2006.

The FHA isn’t the only place buyers may be able to use sweat equity to help with their down payment. The Home Possible mortgage, which already offers one of the lowest down payments around at a minimum of three percent, is another option. “Do-it-yourselfers can apply sweat equity to assist in meeting their down payment and closing costs, co-borrowers who do not live in the home can be included for a borrower’s one-unit residence, borrowers are permitted to own other properties, and more—all with competitive pricing and the ease of a conventional mortgage,” said Freddie Mac.

Freddie Mac recently expanded the program so that borrowers can “cover their entire down payments with sweat equity,” said Tim and Julie Harris Real Estate Coaching. “The Home Possible Sweat Equity Offering supports renovations of aging homes and provides borrowers with an additional form of down payment instead of cash, particularly in rural areas,” said a spokesperson for Freddie Mac. “Borrowers can use sweat equity with no limits on the amount that can be applied to down payments, provided that the labor performed is completed in a skillful manner to support the appraised value (of the home) and is certified by an appraiser.”